Rising cost, supply chain worsens inflation

Rising cost, supply chain worsens inflation
Photo by Paolo Camera- Ask Nigeria

Interest rate heightens as government is advised to contain importation.

Nigeria’s inflation rate is on course to spiral above 50 percent if the current socioeconomic crisis is not addressed as soon as possible. Presently at 20.5 percent which represents the country’s highest rate since September 2005, this inflation continues to rise as a result of the deteriorating economic challenges that have ravaged the country. Although this problem is not peculiar to Nigeria’s economic status quo, the situation driving this surge such as, insecurity & banditry, poor earnings from natural resources, debt burden, foreign exchange problems, sabotage, all of which have hugely affected local production in the country, raises concerns. This situation have also placed huge pressure on Apex banks to also increase their interest rate to rein in rising prices.

Moody’s report notes that banks in Africa would have to respond to this surging rate and higher saving rate with a rising re-pricing of loans. The report also foreshadows that the response will however weaken loanees’ ability to repay the existing loans and increase the banks’ provisioning for loan loss. The report however indicates that most banks took precautious measures following the outbreak of the Covid-19 pandemic posed to limit the extra provisioning required as these defaults increase. The Moody’s cooperation’s arm asserted that the marginal impacts on banks in Nigeria and Kenya especially will be muted, due to their interest rates being already high and their deposit rates, being index-linked to the policy rate.

Rising production cost & supply disruption drives inflation in Nigeria.

Recent data from the National Bureau of Statistics (NBS) indicates that Nigeria’s inflation increased from 19.6 percent recorded in July to 20.5 percent. The NBS’ Consumer Price Index (CPI) report showed a 1.77 percent increase in CPI on a month-on-month basis, adding that food inflation witnessed a 2.82 percent increase to 23.12 percent in August 2022, on a year-on-year basis. The report indicated that is was as a result of the increase in prices of bread and cereal, as well as food products like potatoes, fish, meat and oil. Professor Uche Uealeke, noting that the CPI report showed that the rising costs of production and supply disruptions have well driven the inflationary pressure in Nigeria, stated that the 20.5 percent inflation rate was expected, but admitted that the CBN’s monetary policy tightening stance alone might not be enough to improve the situation.

Emmanuel Kelvin, the CEO of Diary Hills Limited, however argued that the recurring devaluation of Naira which hugely impacts the cost of production was responsible for the current increase in inflation rates. He noted that will enhance the country’s Forex problem asides increasing the quality and quantity of its export was to re-awaken the Yuan swap deal which was signed in 2018. Dr. Muda Yusuf, the former director of Lagos Chamber of Commerce and Industry (LCCI), while reflecting on this situation, noted that the inflationary pressure on the country’s economy was deeply troubling, as the driving factors of this inflation is yet to be abated. He further pointed out that the inflationary pressure continually weakens the buying power of the people and by aggravating pressure on the production costs, profitability is negatively impacted.

Forex needed, as importation dependence devalue Naira.

The Chairman, Financial Reporting Council, Dr. Sam Nzekwe also posited that Nigeria’s lack of involvement in production activities makes it impossible for experiencing respite in terms of the high inflation rate. According to him, the country needs forex, as our dependence on importation have responsibly devalued the currency. On the high cost of production, he also stated that the epileptic condition of power supply have forced most production companies to use diesel which has also been quite expensive. He however advices the Federal Government to enhance local production by making provisions for an enabling environment for these businesses to thrive.

Taiwo Oyedele, Fiscal policy partner and Africa’s tax leader at PwC noted that the government, whilst addressing discrepancies of the energy supply chain, must also curb insecurity, so that farmers can efficiently work on food production. He also pointed out the need for enacting relevant fiscal policy measures like the suspension of the recent excise duty on telecommunications services and non-alcoholic beverages, so as to control the rising inflation by complementing the monetary policy measures. He further advices that MPC must not increase the MPR, so as not to hinder businesses from funding their capacity and needed expansions to enhance their supply chain.

Covid-19, Ukraine-Russia crisis have also contributed to global inflation.

The Chief Economic Adviser to the President, Doyin Salami, whilst speaking on the fiscal impact on the Covid-19 pandemic and future lessons at the Stakeholders Dissemination Workshop pointed out that the huge amount spent by the global economy was responsible for the cascade in inflationary pressures and economic decline. He also noted that this global economic shock was as a result of the impact of Covid-19 pandemic and the Ukraine-Russia crisis, disrupting the global supply chain and leading to a global inflation. He however added that the Federal Government was putting measures in place to elevate Nigeria’s economy to reflect the current economic situation.


Related Link:

National Bureau of Statistics: Website

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22 comments
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Ask Nigeria
7 days ago

Rising cost, supply chain worsens inflation – Interest rate heightens as government is advised to contain importation. – Express your point of view.

Bola12
Member
6 days ago

The Nigerian federal government should be taking steps to improve the country’s economy in order to make it more comparable to the global economic climate at the time.

Tolaniiii
Member
6 days ago

People’s purchasing power is continuously reduced by inflationary pressure, which also has a detrimental influence on profitability through increasing pressure on production costs.

Christiana
Member
6 days ago

The weak economy has put enormous pressure on apex banks to raise interest rates as well in order to slow the rise in prices.

Kazeem1
Member
6 days ago

The inflationary pressure steadily reduces the purchasing power of the general public, and because it also puts additional stress on production expenses, it has a detrimental effect on the profitability of businesses.

Godsewill Ifeanyi
Member
6 days ago

Because the underlying forces that are fueling inflation are not yet under control, the inflationary pressure that was being exerted on the economy of the country was a cause for grave concern.

Adesanyaj72
Member
6 days ago

In order to accommodate this rapidly increasing rate as well as the greater saving rate, financial institutions in Africa would need to re-price their loans at a higher interest rate.

Chibuzor
Member
6 days ago

The research, on the other hand, reveals that the majority of financial institutions responded to the advent of the Covid-19 pandemic by taking preventative steps in order to limit the additional provisioning that will be necessary as the number of defaults increases.

Taiwoo
Member
6 days ago

The analysis also suggests that the response may reduce the ability of loanees to repay the existing debts, which will result in an increase in the provisioning for loan loss made by financial institutions.

Nwachukwu Kingsley
Member
6 days ago

As a result of this circumstance, the most important banks in the world are under a great deal of pressure to raise their interest rates in order to curb the rise in prices.

Hassan Isa
Member
6 days ago

This inflation continues to climb higher as a direct consequence of the worsening economic issues that have wreaked havoc across the nation.

Tonerol10
Member
6 days ago

Inflation has really affected everything in this country. Everybody is going through one or more. The government has not come out with a better solution, this APC administration has really failed us

Ultra0711
Member
6 days ago

We all know the ado we go through because of the ineptly effect of inflation on our economy. Government needs to identify and address the challenges deteriorating the economy.

DimOla
Member
6 days ago

This administration needs to employ competent hands to stir the affairs of the nation before get to the position of no return. Inflation will continue to raise if the needful is not done.

SarahDiv
Member
6 days ago

You know this present administration has impoverished our nation by being sectional and nepotic in their appointment of ministers and technocrats to mount key positions in the country who are able to stir the economical and financial situations of the country. Here we are now they are now struggling with the economy. The worsen security challenges was created by this administration which has negatively impact the economy.
I hope the whole thing will not be worst than this.

Remi1
Member
6 days ago

The breakout of COVID-19 and inflation are both having an impact on people all over the world, but in Nigeria they were both more severe due to the country’s already-declining economy and the government’s unwillingness to take COVID seriously, which is very regrettable.

theApr
Member
6 days ago

Recent data from the National Bureau of Statistics (NBS) indicates that Nigeria’s inflation increased from 19.6 percent recorded in July to 20.5 percent. Federal Government should enhance local production by making provisions for an enabling environment for these businesses to thrive.

Iyanu12345ogg
Member
6 days ago

Inflation has affected every sector in Nigeria. Our leaders need to do something to revive the economy as soon as possible. Find solution!

Last edited 6 days ago by Iyanu12345ogg
Haykaylyon26
Member
6 days ago

Inflation is really affect our country really hard and people are suffering things are cost and high and people can’t afford it a way should be adopt to solve all this inflation

jdpumping
Member
6 days ago

Inflation is really at the highest in Nigeria now and it has affected all speheres of life Including supply and demand chain of our economy and the people are suffering.

Adeolastan
Member
6 days ago

Inflation is affecting every part of the world and the outbreak of covid-19 but it hit harder in Nigeria because of the economy is already in comatose before the covid and the government is not doing much in tackling it on a serious not but choose adding more problem to it citizen and it very unfortunate.

Abusi
Member
6 days ago

The whole economy has collapsed. Nigerian leaders should come again in the drawing table to see what can be done in this unfortunate situation. We need to revive the economy. Any strategy that we can use should be adopted as soon as possible.